How Russian Exporters Can Access The Vietnam Consumer Market
With Russian exporters and manufacturers now looking to access and develop markets in Asia, we can take a look at the potential for the Vietnamese market.
Vietnam has been the beneficiary of a Free Trade Agreement with the Eurasian Economic Union since 2016, as a result of which bilateral trade with Russia has boomed. With now six years of experience and investment in increasing Vietnamese trade infrastructure, Russian exporters and manufacturers considering Asia should be conducting market research activities into the opportunities in the Vietnamese market as it continues to grow and develop.
Vietnam is a good choice for a developing trade partner for Russia, it has a large and increasingly prosperous consumer base of 96 million, spending US$1.86 billion in 2021, and a GDP per capita of about US$7,800. (Russia’s per capita GDP is about US$11,500). Vietnamese consumers are also going digital – In 2021, the value of consumer spending on mobile apps in Vietnam amounted to US$416 million, more than double the spending amount reported in 2018. In 2021, Vietnamese consumers downloaded over 3 billion mobile apps. National GDP growth in 2022 in expected to be about 6.8%.
Consumer confidence is also high. Recent reports here by ourselves and here by Cimigo point to a booming, domestic economy. Hanoi, Ho Chi Minh City and Da Nang are all high-value consumer hotspots with consumer values far above the Vietnamese average. Vietnam’s economy is also set to receive a major boost due to its membership of the Regional Comprehensive Economic Partnership (RCEP), a trade bloc that also includes all ten ASEAN countries, Australia, New Zealand, China, Japan and South Korea.
With the right sourcing programme in place, Russian businesses incorporated in Vietnam may also be able to access the RCEP markets from the country.
Current Russian trade trends with Vietnam are also on an upwards path. According to Russian customs, bilateral trade reached US$6.87 billion in 2021, up 21.7% on the previous year.
The Vietnam-EAEU Free Trade Agreement covers more than 90 percent of all traded goods, and has greatly benefited the EAEU’s exports of agricultural and industrial products, including Russia’s main exports of coal briquettes, hot-rolled iron, and pork. Russian pork exports to Vietnam reached record highs in 2021.
An additional 5,535 tariff lines were reduced to zero percent in 2019. These focused on items that are input materials for the textiles, footwear, electronics, plastic, fertilizers, and farming sector. Another 3,270 tariff lines were reduced to zero percent for goods such as milk and dairy products, chemicals, automobiles, and spare parts, steel products, rubber products, and electrical appliances at end of 2019.
However, the FTA also provides some protective measures.
According to Article 2.1 in the FTA, the EAEU may apply a trigger safeguard measure for Vietnamese goods in case the import volumes during a calendar year exceeds the trigger level as established in Annex 2 of the agreement. Currently, under this measure, certain products in the textile and garment sector in Vietnam face safeguard duties from the EAEU, which aims to limit the increasing volume of imports to the Union. Since March 14, 2018, duties were imposed on Vietnamese underwear and children’s wear products for nine and six months, respectively.
This means that Russian traders have to make sure that they do not exceed the trigger levels as defined under the agreement; else, they may face most favored nation rates and not the preferential tax rates as prescribed under the free trade agreement.
There are opportunities for Russian manufacturers also to compete in the Vietnamese market. Russian truck manufacturer Gaz has recently established operations in the country.
In terms of Russian exports to Vietnam, it should be noted that there are Quality Control standards differences between Russia and ASEAN nations, and Russian exporters should be aware of these. We covered this in the article Quality Control Challenges For Russian Exporters To ASEAN.
Vietnam Market Entry
The most cost-effective way to enter the Vietnam market is to establish a Vietnamese Representative Office (RO), which offers a low-cost entry for Russian companies seeking to gain a better understanding of the Vietnamese market. As such, this option is among the most common for first-time entrants to the Vietnamese market and often precedes a larger presence within the country. RO are permitted to engage in the following activities: Market Research; Act as a liaison office for its parent company; Promote the activities of its head office through meetings, and other activities, that leads to business at later stages. Representative offices are operated as cost centres and are dependent on their parent company and are not allowed to generate their own profits or enter directly into contracts. They are also not allowed to issue invoices, but may act as a de facto agent between the Russian head office and Vietnamese business.
Market analysis, research and entry assistance into Vietnam can be obtained from our Hanoi, Saigon and Da Nang offices where our firm has been assisting foreign investors and exporters since 2009. Please contact firstname.lastname@example.org for details.
Russia Briefing is written by Dezan Shira & Associates and is aimed at assisting Russian businesses and exporters develop markets throughout Asia. With 28 regional operations, and 30 years of experience, we can assist Russian businesses into Vietnam, ASEAN, India, and China. Please visit us at www.dezshira.com